'Something stunk' about donation, businessman tells ICAC

Michaela Whitbourn and Kate McClymont

An adviser to former energy minister Chris Hartcher urged a property developer not to declare a $5000 donation that was channelled into a secret Liberal Party slush fund, a corruption inquiry has heard.

Matthew Lusted, the Wyong businessman whose donation to the Liberals sparked an investigation into alleged illicit donations, told the Independent Commission Against Corruption on Tuesday he had a "gut feeling ... something stunk" when adviser Ray Carter made the request.

Property developers have been banned from making political donations in NSW since December 2009.

Mr Lusted said he was unaware of the prohibition and did not know the money was channelled into a "sham" business called Eightbyfive, which was set up by former energy minister Chris Hartcher's long-term adviser, Tim Koelma.

He said Mr Koelma was "a liar" if he claimed the donation was for political advice relating to his unsuccessful bid for Liberal Party preselection for the Central Coast seat of Dobell, previously held by disgraced former Labor MP Craig Thomson.

The ICAC heard explosive allegations on Monday that hundreds of thousands in illegal donations to the NSW Liberal Party were channelled into slush funds linked to Mr Hartcher and the party's chief fundraiser, Paul Nicolaou. The money was used to bankroll the party's successful 2011 election campaign.

Mr Hartcher and fellow Central Coast MPs Chris Spence and Darren Webber allegedly used Eightbyfive to bill property developers and other donors for fake services to disguise payments totalling more than $400,000.

Mr Lusted said Mr Carter approached him to make a $5000 donation to "the boys" on the Central Coast before the March 2011 election, which was intended to be spent on advertising in bus shelters and door-knocking.

Liberal Senator Bill Heffernan, who blew the whistle on the Eightbyfive scheme, was Mr Lusted's mentor in his unsuccessful bid to win Liberal preselection for disgraced former Labor MP Craig Thomson's federal seat of Dobell on the Central Coast.

He said in a statement he heard claims Karen McNamara, who won the seat of Dobell for the Liberals at the last election, was "gloating" about how well she campaigned for Mr Webber before she entered Parliament.

Ms McNamara allegedly started "struggling and fumbling" when asked how she had raised up to $200,000 after a speech but Mr Webber shut down questions.

Mr Lusted added Senator Heffernan was like "a bull in a china shop" after he got wind of the Eightbyfive scheme and started spreading the word.

The inquiry has heard a separate slush fund, Micky Tech, was also used by Mr Hartcher to receive donations, while an entity called the Free Enterprise Forum was used to "re-channel" separate illicit payments totalling more than $160,000 to the NSW Liberals.

The inquiry heard the Free Enterprise Foundation was used by members of the Liberal Party as a means of "washing" illicit donations, which were then forwarded to the party without disclosing their source.

The inquiry has heard Mr Nicolaou, the former chairman of the party's fundraising arm the Millennium Forum, was complicit in a scheme to "re-channel" illegal donations from the Free Enterprise Foundation to the Liberals.

About $700,000 was paid to the foundation and redirected to the party before the last state election, a "substantial portion" of which was from illegal sources.

Mr Nicolaou resigned as chairman of the Millennium Forum earlier this month and is on indefinite personal leave from his position as NSW chief executive of the Australian Hotels Association.

Premier Mike Baird said he was "shocked and appalled" by the allegations and asked newly appointed NSW Liberal state director Tony Nutt to investigate the allegations and deal with any payments made in contravention of the law.